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Uroplasty, Inc. (NASDAQ:UPI)

Q4 2014 Results Earnings Conference Call

May 15, 2014 4:30 PM ET

Executives

Doug Sherk - Investor Relations, EVC Group

Rob Kill - President and Chief Executive Officer

Brett Reynolds - Chief Financial Officer

Analysts

Brooks O'Neil - Dougherty & Company

Chris Lewis - ROTH Capital Partners

Charles Haff - Craig-Hallum Capital Group

Jose Haresco - JMP Securities

Craig Davis - LaSalle Investments

Tim Clarkson - Van Clemens & Co.

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Uroplasty Fourth Quarter Fiscal 2014 Financial Results Conference Call. (Operator Instructions) This conference is being recorded today, Thursday, May 15, 2014.

I would now like to turn the conference over to Mr. Doug Sherk of EVC Group. Please go ahead, sir.

Doug Sherk

Thank you, Danny and good afternoon everyone. Thank you for joining us for Uroplasty conference call to review the financial results for the fourth fiscal quarter of 2014 which ended on March 31, 2014. The news release announcing the results crossed the wire this afternoon shortly after the market closed and is currently available on the Uroplasty website. We have arranged for a taped replay of this call which can be accessed by phone. This call is also being streamed live on the Investor Relations section of our website at www.uroplasty.com and will be archived there.

Before we get started, during the course of this conference call, Uroplasty’s management may make projections and other forward-looking statements regarding future events including but not limited to statements about sales, reimbursement for procedures performed with our products, the potential market opportunities for our products and new product initiatives. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from anticipated results. These risks and uncertainties as well as others are more fully discussed in the company's annual report on the Form 10-K and other quarterly reports filed with the SEC.

Additionally, the statements made on this conference call are made only as of today, May 15, 2014 and we assume no obligation to update these forward-looking statements to reflect future events or actual outcomes, and do not intend to do so.

With that, I'd like to turn the call over to Rob Kill, President and Chief Executive Officer of Uroplasty.

Rob Kill

Good afternoon everyone and thanks for joining us today. Joining me on the call is Brett Reynolds, our Chief Financial Officer.

We finished fiscal year 2014 with an outstanding fourth quarter especially with our Urgent PC Neuromodulation device. Global Urgent PC revenue grew 34% over Q4 of last year and touched $4 million in revenue for the first time in the company’s history.

In the U.S., despite the well-documented weather impacts on procedure volumes across all the healthcare, Urgent PC revenue increased 27%. For our full year fiscal 2014, total company Urgent PC revenue grew 19% over prior year and U.S. Urgent PC revenue grew 17%.

This growth reflects the growing recognition by physicians that are minimally invasive, office-based procedure should be the first line of the third-line OAB treatments. Compared to the more invasive surgical treatment options of Interstim and BOTOX, Urgent PC has delivered it at significant lower cost with a much lower risk profile and fewer adverse events, which aligns well with the change in healthcare reimbursement models.

In addition, while there is still plenty of work left to do, we are overcoming the lack of awareness and inaccurate market perceptions created by the product launch that we’ve discussed with all of you in the past. And this progress is reflected in our customer metrics.

We had 801 active customers in United States for Urgent PC during the fourth quarter compared to 650 active customers in the same quarter one year ago. An active customer is defined as one who placed an order in that current quarter.

We also brought on 120 new customers and reengaged another 43 customers in the quarter. Remember that reengaged customer is defined as one who purchased product in the current quarter and had previously been customer but has not purchased product within the prior four quarters.

Another area in which we’ve seen success is the utilization rate within our top 50 accounts. These top 50 comprise approximately 30% of our U.S. Urgent PC revenue and in the fourth quarter, the average utilization rate in these accounts was 25.9 boxes. This is an increase of 19% from the fourth quarter of last year and this growth in utilization is a great indicator of the success these practices were having in treating their OAB patients with Urgent PC.

It also helps us understand the type of success more practices could have in treating their OAB patient population when trained and supported appropriately. Our strong Q4 results also reflect the benefits of time in territory for our sales team. While nearly half of our sales reps have been in the territories for less than one year, the majority of these reps have now been with Uroplasty greater than six months.

This time in territory is important to our business and our results. And we believe that we will continue to see productivity improvements in our sales team as fiscal year 2015 unfolds. We also continue to make investments to elevate the clinical and competitive selling skills of our sales team.

We just completed our national sales meeting with U.S. team last week. And we dedicated the significant portion of the meeting to our strategic sales assimilation that replicated the convergent process for Urgent PC within the physician office with both, improvement in effectiveness and efficiency in both implementing and expanding Urgent PC within the practice.

The sales team was provided with a case study team where they had to demonstrate appropriate account targeting to facilitate best practices for customer on boarding and executed active account management strategy driving intention and utilization within the customer base. Ongoing investments in training like this will also drive sales productivity improvements going forward.

To my earlier points that physicians are growing more aware of the role Urgent PC should play in treating their OAB patients. We continue to receive third-party medical community endorsements. Recently, a distinguish panel of voiding dysfunctions experts convened to discuss the OAB market.

This panel not only agreed that Urgent PC should be the first line and the third-line treatment options. They also consented that Urgent PC should be a second-line therapy alongside medications due to its safety, efficacy and lower cost for the healthcare system.

An article for this round table will be published in the June Urology Times which has a circulation of 11,000 physicians, PAs, and NPs in the urology community and will be distributed at this year’s AUA meeting in May to the conference attendees. An additional 20,000 targeted primary care physicians will receive the supplement in June through the medical economics magazines.

Certainly, marketing programs like this will positively impact awareness of Urgent PC and its clinical value in treating OAB patients. Increased reimbursement coverage for Urgent PC continues to be a key element of our strategy.

One of our significant achievements in the past year was the positive TEC assessment by the Blue Cross and Blue Shields Medical Advisory Panel that concluded the use of PTNS for the treatment of voiding dysfunction, meets their evidence based criteria as a safe and effective treatment for overactive bladder. This positive assessment provided strong validation of the acceptance of Urgent PC as an important treatment option for OAB and will be instrumental to the individual BCBS companies as they determine their coverage policies for PTNS and opens the door to reach an additional 80 million covered lives.

In the short period of time, since the announcement of positive TEC assessment, we have gained nearly 10 million of those 80 million additional blues lives with positive coverage decisions from Independence in Eastern Pennsylvania, Premera in the Pacific Northwest and BCBS at Michigan and we expect more positive coverage decisions from additional blues plans over the coming months.

In addition, Urgent PC also recently received the positive coverage decision from UPMC Health Plan representing approximately 2.2 million lives in Western Pennsylvania. As you all know, NGS is one of eight Medicare administrative contractors also known as MAC.

NGS has jurisdiction over 10 states and is the only MAC not to have a positive coverage decision for PTNS. Eight of these 10 NGS states had positive coverage in our fiscal year 2014 until they were consolidated into the NGS jurisdiction which had been just New York and Connecticut up until that point.

In February of this year, two LCD reconsideration request were submitted to NGS, one by Uroplasty based on the new information provided in the positive BCBS TEC assessment and one by a coalition of nearly 100 physicians based on standard of care. We were informed on Tuesday that they will not be changing their current non-coverage decision based on Uroplasty LCD request.

NGS made this decision despite the recent evidence based reviewed by BCBS Medical Advisory panel that resulted in the positive TEC assessment for PTNS despite the fact that PTNS has positive coverage in every other Medicare jurisdiction representing over 40 million Medicare beneficiaries despite the fact that PTNS has positive coverage from major payors like United Health, Aetna, Kaiser, Humana, Healthmed and several of the large blues plans representing almost 120 million lives.

They made this decision despite the fact that AUA and SUFU, the leading professional society focused on OABs and treatment of voiding dysfunction both collaborated to publish treatment guidelines that include PTNS as an appropriate treatment option for OAB patients.

This decision was made despite the fact that nearly 100 physicians in the 10 states without PTNS coverage formed a physician advocacy coalition and reached out directly to NGS to show PTNS was and should now be an important and cost effective treatment option for the Medicare beneficiaries, many of whom are now left out at OAB treatment option because NGS no longer reimburses for PTNS treatments that the patients had been receiving. This decision was made despite the fact that PTNS has multiple randomized blinded control trials providing clinical evidence on the efficacy of the treatment.

Despite all this, NGS has determined that there is not enough evidence to provide a positive coverage decision for PTNS. Needless to say, we will continue to proactively engage with NGS to help them understand the important role PTNS plays in treating OAB, a chronic condition that impacts the quality of lives of millions of Americans, many of whom who don’t find the real solution of their symptoms and then appoint adult pads and diapers which I think we can all agree is not a solution but a stopgap measure.

Switching gears on the product development front, you are aware that we have the CE Mark in Europe for fecal incontinence. This debilitating condition affects nearly 30 million people in the U.S. and half of these patients with fecal incontinence don’t respond to behavior modification, pelvic floor training or biofeedback, leaving them with limited options to address the burden of their condition.

PTNS with our current Urgent PC device is already used in Europe as a minimally invasive option for the treatment of fecal incontinence and shows good safety and effectiveness in addressing this condition. In fact, in articles published just last week in the journal, Surgery Today, on a retrospective analysis completed on a 146 patients who received 12 weekly PTNS treatments and 50 patients who receive a permanent SNS implant.

The conclusion was that the post-treatment Cleveland Clinic Incontinence Scores and incontinence episode frequencies were comparable, with PTNS having significantly lower costs and being less invasive. Additionally, data presented at a research forum at last week’s Digestive Disease Week meeting in Chicago concluded that clinical outcomes for SNS and PTNS were comparable on an intensive treat basis and a randomized mixed methods pilot of SNS versus PTNS.

Our U.S. pilot study for fecal incontinence with Urgent PC has completed enrollment and the interim result for this trial are consistent with other published fecal Incontinence treatment data for a PTNS therapy. This favorable picture from multi-data sources of the value the Urgent PC provides for treating fecal incontinence is providing us with the confidence to commit resources during fiscal 2015 for a U.S. pivotal trial.

Now, I’d like to turn the call over to Brett to give some additional detail on our financial results for the quarter, and then I will finish with some comments about our forward view of the business.

Brett Reynolds

Thank you, Rob. Good afternoon, everyone. As Rob said earlier, Q4 was an outstanding quarter with overall revenue growth of 15% and Urgent PC growth of 34%. Total Urgent PC revenue in the quarter was $4.1 million, as compared to $3.1 million in the fourth quarter of last year.

U.S. Urgent PC revenue was $3.3 million, representing 72% of total sales in U.S. compared to $2.6 million and 64% of total U.S. sales in the same quarter of the prior year.

Urgent PC sales outside the U.S. totaled $851,000 in the fourth quarter, which is 74% higher than the year ago period due to strong growth in Switzerland and the Nordic countries where we have initiated direct selling efforts as well as strong results in the U.K., where we had recently expanded our sales team.

Total U.S. revenue was $4.5 million, up 13% as compared to the $4 million of revenue in the fourth quarter of last year. Total international revenue for the quarter was $1.8 million, an increase of 20% over the prior year period.

Our first quarter Urgent PC sales performance was positively impacted by our investment in training of our sales reps in Q3. We remain highly focused on ensuring we train our customers on the appropriate procedure technique meaning the right location for knee replacement and the right depth proximate to the tibial nerve and setting patient expectations where progress was typically not seen until after the six treatments and sometimes not until a tenth or the eleventh treatment.

Both of these are issues that resulted from the broad product launch and while we are aggressively working to collect there, we will continue to take time to fix. We sold 4,222 lead set boxes this quarter, up from 3,362 in the fourth quarter of last year.

Most of this growth was the result of the increase in the number of our asset customers, with utilization per customer increased by 5.3 boxes per account compared to 5.2 boxes in both the fourth quarter of last year and the third quarter of this year.

Our Macroplastique product line finished fiscal ’14, with both U.S. and international sales approximately 2% below prior year levels. Macroplastique is a best-in-class product for injectable bulking agents for female stress urinary incontinence, but the overall market is small and not growing.

The large majority of the stress urinary incontinence market is due to hypermobility and bulking agents do not resolve this issue. We have experienced and we will continue to experience quarterly fluctuations with this product line.

For example, global Q3 Macroplastique revenue was up 12% over the same period of prior year, while Q4 revenue was down 11%. Again, you should view the results from these product lines on an annual basis and not read too much into quarterly fluctuations.

Our gross margin was 87.8% for the fourth quarter, about a 100 basis points higher than the year ago period. The increase was due to product and geographical mix as well as higher overall Urgent PC sales.

Operating expenses for the period totaled $6.7 million, compared to $5.8 million in the same quarter last year. The increase in operating expenses resulted from full staffing of the sales team in the current quarter, as well as the expense related to the six clinical specialists we added throughout fiscal ’14.

In the fourth quarter of this year, we had all 43 sales territories filled, while in Q4 of last year, our FTE for sales reps was about 37.6. In addition, variable and incentive compensation was higher in the current quarter from the year ago period given the revenue results for the quarter and the full year.

Our operating loss of $1.1 million in the fourth quarter compares to a loss of $1 million in the same quarter last year. Excluding non-cash charges for share-based comp, depreciation and amortization expense, the non-GAAP operating loss was $814,000 this quarter compared to $477,000 a year ago.

As of March 31st, we had cash, cash equivalents and investments of $12.1 million and we believe this is a sufficient amount of resources to execute our operating plan for the foreseeable future. Including increased investments, we will be making in product development that Rob will cover in a moment.

Now, looking forward to fiscal ’15, for the full year, we expect total revenue growth to range from 9% to 12%, which equates to expected fiscal 2015 revenue of $26.8 million to $27.6 million. Global Urgent PC revenue is expected to grow approximately 15% in fiscal 2015, while total Macroplastique revenue is expected to be similar to fiscal ‘14.

Note that we lost over 200 selling days in May due to our continuing investments in advanced training for our U.S. sales team and we will be holding our International Sales Meeting in June. These investments will provide long-term value that need to be taken into consideration when assessing quarterly revenue throughout fiscal ’15.

Our gross margins for fiscal ’14 was 87.6% for the full year and we expect our gross margins to be slightly above this level in fiscal ’15. Excluding non-cash charges for share-based comp, depreciation and amortization, we expect our fiscal 2015 non-GAAP operating loss to range from $3 million to $4 million. This guidance assumes ongoing investments in various segments of our business, which Rob will now explain. Rob?

Rob Kill

All right. Thanks, Brett. So as we look back in the past year, I think we can all agree that this business and its trajectory feel very different than a year ago at this time. We clearly regain momentum for Urgent PC, both in the U.S. and in the international markets. After experiencing sequential revenue decline in the back half of our 2013 fiscal year, we’ve now had four consecutive quarters of sequential growth.

Our repurposed and refocused sales team, our new marketing strategies and improved execution have made a big difference and clearly demonstrates potential we have to win not only new customers but also to engage former customers for Urgent PC. Our minimally invasive office-based treatment in combination with an extremely low adverse event rate is well positioned for the future healthcare delivery models that are necessary to drive higher quality outcomes at a much lower costs.

We’ve also build an entirely new leadership team with expertise in devices in urology and in growing businesses. In the past year, we’ve attracted new leaders for sales, marketing, finance, R&D and healthcare affairs. In short, we’ve build a world-class leadership team with the capabilities to help Uroplasty become a much large company than we are today.

While, we’ve made good progress, we still have lots of work left to do. We had total company revenue growth of 10% in fiscal year ’14. Ultimately, our goal is consistent revenue growth of 15% and higher. But for us to be able to reliably deliver this level of growth, we still have investments in the business to make.

As Brett just said, we expect total revenue growth in the range of 9% to 12% in fiscal year 2015. Consistent with last year’s growth rate, despite the loss of nearly $1 million of Urgent PC revenue from the eight NGS states that had coverage for Urgent PC during our fiscal year 2014.

Looking forward, we would expect our total company growth to achieve our targeted 15 plus percent starting in fiscal year 2016. Physician Urgent PC, for it is accelerating growth, we are making investments in creating greater physician and patient awareness. The Urology Times roundtable panel and resulting inserts are great example of this.

We will also invest in developing and implementing best practices from the most successful customers, so that we can drive improved utilizations closer to the level of our top 50 clients, while on a quarter basis utilize almost five times as many lead sets is what our average customer does.

The key component to winning this best practices will be the hiring of an additional six clinical specialist in fiscal year ’15, to provide support to our key customers, so our sales reps and dedicate to an even greater portion of their time to expanding our customer base.

To that point, we are also expanding the call point for our sales team beyond our historical focus on urologists. We will be offering Urgent PC to other physicians to treat OAB patients. To be specific, gynecologists who tend to be the de facto primary care physician for most women, urogynecologist and a highly targeted group of primary care physicians who are high subscribers of OAM meds will be new call point for our sales team as we look to accelerate the growth of Urgent PC.

Another key focus will be investments in R&D to build our product pipeline, where there has been little or no investment in the past several years. Our fecal incontinence clinical trials are well underway and we will investigate other potential indication expansions for the Urgent PC device in the public health area.

We will also seek to expand our product portfolio from business development activities and we will focus on capitalizing on leverage call point created by our strong distribution channel. Our goal is straightforward. We won’t to create increasing shareholder value through accelerating growth of Uroplasty. We built world-class leadership team with the capabilities to help us become a company much larger than we are today and we plan on doing just that.

This concludes our formal remarks. And Brett and I now would be happy to take any questions you have. So operator, if you could please open the call for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Brooks O'Neil with Dougherty & Company. Please go ahead.

Brooks O'Neil - Dougherty & Company

Good afternoon. Thank you for the comprehensive overview of what you guys are upto. I am pretty impressed. I am just curious, Rob, if you could talk a little bit about, at what level of revenue do you think you should start to see meaningful operating leverage in the business? Or maybe said differently, what do you think it’s going to take to get the company profitable?

Rob Kill

Yes, Brooks, I think the answer to that is, we are making decisions on investments that we think will accelerate the growth in particular with new product extensions by people incontinence.

Brooks O'Neil - Dougherty & Company

Yes.

Rob Kill

And so those investments are going to be made over the next year or two, and we think there is a significant payoff to those investments. So I think it’s too early to say what that level is, because we are still making investments now. We will probably make some more investments that we think will accelerate the growth in the future.

Brooks O'Neil - Dougherty & Company

Good. All right. Let me ask the second question. I am curious. Obviously, you detailed some of the significant payer enhancements you’ve achieved recently. Do you see additional opportunities on the payer side to continue building the market opportunity?

Rob Kill

The answer is yes. We really have just started penetrating the 80 million Blues lives that we didn’t have. And in a short period of time, we picked up 10 of them. We think there is more to come. But as we said in the last call, it’s a 12 to 18 months process because of the timing and a lot of different factors to build into it. I spent a lot of time talking about NGS.

I can assure you we are not done talking about this with NGS, but more importantly, I would tell you the physicians and the patients in those spent space are not done talking about it. I mean, there are patients who are being treated, who no longer can be treated. There were physicians who saw this as an important part of the treatment algorithm and who have patients who have no interest in surgical options. And unlike the other 40 states, just by virtue of the fact that some of these in Minnesota, they can’t get treated. And so clearly, we will continue to focus on this NGS challenge and we are hopeful that over time that they will see the lives that other seven max have seen already.

Brooks O'Neil - Dougherty & Company

I think that’s great. Thanks a lot. And I will get back in queue.

Rob Kill

Thanks, Brooke.

Operator

Our next question is from the line of Chris Lewis with ROTH Capital Partners. Please go ahead.

Chris Lewis - ROTH Capital Partners

Hey, guys, good afternoon, and congrats on the progress and thanks for all the detail.

Rob Kill

Thanks, Chris.

Chris Lewis - ROTH Capital Partners

I guess first just on the guidance, I think it’s a first time company has given guidance at least since you have been there on an annual basis. So maybe you could give us kind of a high level overview of what went into that guidance, the methodology you kind of used to get to that range and you know what’s assumed in the top and bottom line in terms of those ranges? And then I guess just to your overall confidence level, that is an achievable level this year?

Brett Reynolds

Hey, Chris, it’s Brett. So if you look back last year is growing 9%, 10%, this year. We are projecting 9% to 12%. As Rob mentioned, we’ve kind of seen good success this last year. There is still investment to be made. And we don’t want to get ahead of ourselves. The revenue build up that we provide build up different -- that you see input into it. And again, it’s something that we feel comfortable with, but it is guidance looking forward.

From the expense standpoint, there is more investment. We’ve talked about a cash loss of $3 million to $4 million that there is going to be investments in sales and marketing programs, as well as R&D. R&D spent just maintenance, if you will, in the past and we need to invest in some of the new indications. So that’s a thought that went into it. So leave it that.

Rob Kill

Chris, the only thing I will add is the comment I made in the call is we had a $1 million of NGS revenue in 2014. That clearly is not into 2015 plan because we don’t have coverage, right. So our view is that we are seeing productivity gains from our reps. We are seeing accelerating growth net of the NGS loss, but we are still in the early stages. We thought that was before us. It’s overcoming the broad product line, so it’s not something to do in 6 to 9 months. There is a lot of misperception still out in the marketplace and it’s a lot of hard work for us to gain new customers, reengage old customers and change some of the perceptions that were created. And we are making investments to get over that humps like the Urology Times and so -- but it will take some time.

Chris Lewis - ROTH Capital Partners

Okay. I appreciate all the detail there. Thanks. And then I guess turning over to the sales force, it sounds like the majority of those sales reps have been tenure now for 6-plus months, maybe not up to the full utilization of a year that you have talked about in the past. But I guess maybe just give us a sense at where you think the company is in terms of the evolution of the sales rep productivity, how much further is there to go, how are the training and education programs paying off and what’s the plan there for the remainder of this year? Thanks.

Rob Kill

Right. The plan is we are going to continue to make what we have work well before we invest in expanding there. We will invest in clinical specialists, free-ups in selling time for these reps. I think the training has been really impactful for our team and we will continue to make those kind of investments. I think the answer is were those room to go is, our top 50 customers average 25.9 a quarter and our average customer average is 5. And our sales team along with the clinical specialists needs to work to move more of our customers closer to the 25 range than at the 5 range. And so we think there is a lot of productivity improvements we gain that way by focusing and now we better train and support some of our existing customers.

Chris Lewis - ROTH Capital Partners

Okay. And then turning to the pipeline, can you elaborate on the expectations for the fecal pivotal trial in the U.S., how big, how long is that going to take and how much is that going to cost you?

Rob Kill

Yes, it’s still too early for that, Chris. We are working on some of the protocols right now. We will have more answers as we get further along. But needless to say, when you look at some of the clinical evidence that’s already out there, we feel pretty positive that we have something here that can survey a patient population that is deeply underserved today. But we will provide more details as we have more information down the road.

Chris Lewis - ROTH Capital Partners

Okay. That’s it for me. Congrats on all the progress.

Rob Kill

Thank you, Chris.

Operator

Our next question is from the line of Charles Haff with Craig-Hallum Capital Group. Please go ahead.

Charles Haff - Craig-Hallum Capital Group

Hi, guys, thanks for taking my questions. I wanted to get a clarification. I think I missed this, but average sales reps in the quarter, did you say 37.6, Brett?

Brett Reynolds

No, that was a year ago. So this quarter, we were fully staffed, essentially fully staffed.

Charles Haff - Craig-Hallum Capital Group

Okay. And how many sales reps did you have this quarter?

Brett Reynolds

43.

Charles Haff - Craig-Hallum Capital Group

43, okay, thanks. And then going into the AUA meeting, I am wondering what kind of presentations or posters or any marketing plans that you have scheduled there?

Rob Kill

We have no presentations on the podium and that’s something that we’re working on with our new marketing leadership team, but there are lots of activities through our (indiscernible) with not only some of the clinicians who actually in many cases provide the treatments but we do have some physician presentations that are (indiscernible) on Urgent PC.

Charles Haff - Craig-Hallum Capital Group

Okay, good. And lastly on First Coast and the review of the physician component for the RVU, is there any update there, any discussions that you are aware of?

Rob Kill

No, there is nothing new there.

Charles Haff - Craig-Hallum Capital Group

Okay, thank you.

Rob Kill

You are welcome.

Operator

Our next question is from the line of Jose Haresco with JMP Securities. Please go ahead.

Jose Haresco - JMP Securities

Good afternoon.

Rob Kill

Hi, Jose.

Jose Haresco - JMP Securities

I know I don’t want to echo my thanks for all the detail that you are providing this quarter, it’s a nice change and very encouraging. I guess could you give us perhaps a little more granularity there. When you talk about those top 50 clients, what are they doing that’s different? Are these docs that have always been believers and never really left us lock so to speak? Are they folks that came onboard and went back when you came in -- when you back to the market within the selling process?

Rob Kill

Jose, it’s a mixture of many, right. There are some long-term customers. There are some newer clients and some folks who kind of what I will call mid-term clients. So there is no common threat based on when they joined us. The common threat is that they have figured out how to implement this within their practice and identify patients who could benefit from Urgent PC treatments. And they have a success and have seen patient success. And when the patients are successful, it motivates them to use this as option more often. And so that’s why we are making investments in the clinical specialists to help us train and support many more of our clients to a greater level than we have had in the past. And those who had the interactions with 6 that we trialed earlier this year, the growth rate and utilization rate in those accounts is higher than all of our other accounts. So we think that training support is really critical in helping them implement this within their practice.

Jose Haresco - JMP Securities

Okay, great. So some more related to that, could you give us sense for how much better utilization is when there is a clinical support person around? And I am sorry if I missed this, but how many clinical support people do you actually see yourself having over the next year or so?

Rob Kill

We said we are going to invest in six more this year, so we will have 12.

Jose Haresco - JMP Securities

Okay.

Rob Kill

We are in the process of hiring them right now, and the growth rate in those accounts was nearly double the growth rate of business.

Jose Haresco - JMP Securities

Okay. Do they have an immediate impact I guess they were trying to figure out the pacing of the impact of adding a new person to the staff or at that level? Does it double immediately or is the two quarters, three quarters or is that all over the place?

Rob Kill

It’s not immediately. They obviously have to gain familiarity with all best practices and how the -- they are familiar with these sounds. I mean, it’s typically two, three quarters, maybe longer.

Jose Haresco - JMP Securities

Okay. I think a last question. You are making decision to go broader and tap into other call points that write a lot of scripts. Is that a recognition that you could be leaving money on the table because there is -- they do write a lot of script or are you getting some preliminary demand from that call point already that you were just and it’s loud enough to be decided it’s kind of worth paying attention to?

Rob Kill

Yes and yes. We’ve had people who from those various call points who reached out to us we have some existing customers over the past six months. At the same time, the reality is that the 50% of the OAB scripts are not written in urologist office. And those patients fill between the two because the large majority they never get referred on to a specialist or refer to the urologist. So if there are patients who have a need, we want to serve those patients, we want to help those physicians serve their patients. So it’s a combination of we see an opportunity, but also those customers have seen an opportunity and have reached out to us.

Operator

Thank you. Our next question is from the line of Craig Davis with LaSalle Investments. Please go ahead.

Craig Davis - LaSalle Investments

Hey, Brett and Rob, congratulation on the progress, nice to see it. One quick question for you. In last quarter’s call, one of you mentioned the clinical, who said the one of the adoptions to -- one of the various physicians to adopt your product was learning how to effectively place the needles into with the depth and angle. Is that still the case and have you made progress on overcoming that? Is that you still see there is a primary barrier or is there something else?

Rob Kill

Well, that’s the training comment we keep emphasizing, training our reps, training our clinical specialists to train our customers. You have to be in these accounts and you have to train them, you have to be there for every time they treat the patients, but there is constant enforcement and that’s the world of clinical specialists. Obviously, we’re making progress because you can see the business growing but it takes time. So we’re continuing to make training investments and supporting our customers, but as we said repeatedly, we’re in the early innings of fixing some things that we’re not so optimal acquiring and plus we’ve been there nine months. It’s not fixed to nine months, it takes time.

Craig Davis - LaSalle Investments

Absolutely and congratulations on the progress today.

Rob Kill

Thank you.

Craig Davis - LaSalle Investments

You said you got 43 sales reps and you have your six clinical reps seen going to 12 by so the end of the year. Do you see adding to the sales force as well or you have focus in the clinical side?

Rob Kill

Right now, we’re going to stick with 43 and 12. We want to get what we have right first and we see the value of the clinical specialists, clean up sales teams time is the right investment to make. My sense is over time we will probably look to expand the sales force as we have more success, but that’s 9 in our radar for this coming year.

Craig Davis - LaSalle Investments

Thank you very much. Appreciate it.

Operator

Our next question is from the line of Tim Clarkson with Van Clemens & Co. Please go ahead.

Tim Clarkson - Van Clemens & Co.

Hi Rob.

Rob Kill

Hi Tim.

Tim Clarkson - Van Clemens & Co.

Nice quarter. Just on a big picture basis, so you’re going to spend a fair amount of money next year. What percentage is going to go on the sales and marketing? What percentage is going to be R&D on probably the fecal?

Rob Kill

Yeah. So we haven’t given that level of detail, we don’t plan on it.

Tim Clarkson - Van Clemens & Co.

Okay. In terms of the -- now you’ve actually done procedures on the fecal incontinence in Europe, right?

Rob Kill

Correct.

Tim Clarkson - Van Clemens & Co.

Okay. How does that compare in terms of costs, or how much revenues you get per patient as opposed to treating urinary incontinence?

Rob Kill

Similar.

Tim Clarkson - Van Clemens & Co.

Pretty similar?

Rob Kill

It’s the same pricing.

Tim Clarkson - Van Clemens & Co.

Okay. And is it the same number of -- are you going with the dozen treatments too, is that the typical treatment mode?

Rob Kill

It’s the same device, same treatment algorithm, same pricing, instead of urinary incontinence we are treating fecal incontinence.

Tim Clarkson - Van Clemens & Co.

Do you actually inject the needle in the same ankle spot then too or is it --

Rob Kill

Yeah. It’s the exact same treatment.

Tim Clarkson - Van Clemens & Co.

It’s the exact same. Okay.

Rob Kill

If I could say, we place the needle instead of injected that.

Tim Clarkson - Van Clemens & Co.

Right. It sounds much better. Right.

Rob Kill

We don’t want to scare anyone.

Tim Clarkson - Van Clemens & Co.

Yeah. You don’t. It was scary enough. And lastly, Medtronic has -- they have an implantable for fecal incontinence too, has that already got an FDA approval?

Rob Kill

Yes.

Tim Clarkson - Van Clemens & Co.

Okay. Is it kind of the same -- is that the same cost structure for that product as for the urinary incontinence?

Rob Kill

I’m not as familiar with that, the pricing level on that. But I would assume it’s similar. I just don’t know. I have no idea.

Tim Clarkson - Van Clemens & Co.

Okay. Okay. Obviously, your product is going to be considerably cheaper too so. Okay.

Rob Kill

In office-based treatment, minimally invasive, lower cost, similar efficacy. As we think about -- I’m sorry. Go ahead

Tim Clarkson - Van Clemens & Co.

So you are looking at 70%, 75% success rate so?

Rob Kill

Well, we’re in the midst of a pilot study right now here in the U.S.

Tim Clarkson - Van Clemens & Co.

Right. Right. And in terms of numbers of patients, what’s the ratio of urge incontinence to fecal, typically in the United States?

Rob Kill

There is about 30 million fecal incontinence patients in the U.S. I would suggest that maybe there is a little, say half of those who fail behavior modification or pelvic floor training or biofeedback, so it’s large. But there is not a lot of solutions for them.

Tim Clarkson - Van Clemens & Co.

And there is no drug solution, so that…

Rob Kill

They’re very motivated population.

Tim Clarkson - Van Clemens & Co.

Yeah. And there is no drug solution for that right now, all right? I mean, they don’t typically give out drugs for that, do they?

Rob Kill

There is not a lot great solutions for it, no.

Tim Clarkson - Van Clemens & Co.

Yeah. Okay. Great. Thanks.

Rob Kill

You are welcome.

Operator

(Operator Instructions) Our next question is a follow-up question from the line of Charles Haff with Craig-Hallum Capital Group. Please go ahead.

Charles Haff - Craig-Hallum Capital Group

Hi. Thanks for taking my follow-up questions. In EU, you kind of spiked out where you had strength geographically? But I’m wondering if you could talk about maybe product wise, where you had strength, maybe in the U.K. specifically.

Brett Reynolds

Charles, it is Brett here. Yeah. Both the U.K., and going direct out of Netherlands into the Switzerland, Nordic countries was strong in the quarter. And primarily Urgent PC, Macroplastique, not so much. So product line is Urgent PC in those geographies.

Charles Haff - Craig-Hallum Capital Group

And do you think you’re seeing strengthen from the fecal side or with OAB side?

Rob Kill

It’s hard to breakout. We don’t have -- it is from both. To get the actual details of it, we don’t have it at that level at this point but certainly it’s from both.

Charles Haff - Craig-Hallum Capital Group

Okay. And then regarding the new call points, GYN, UROGYN, I’m wondering, what percentage or if you could characterize out of your active customers today, how many of those customers are GYNs or UROGYNs.

Rob Kill

Very small, negligible.

Charles Haff - Craig-Hallum Capital Group

And then on the implantable PTNS, we didn’t hear anything about that program. Will that not be anything that you’re looking at in fiscal ‘15 and would you anticipate that you may consider that in future periods?

Rob Kill

Yeah. And Charles, we believe our home-based treatment option is important for the future. And we are actively assessing the market and determining what would be the quickest path to success. But at the same time, we’re ensuring that whatever solution we’re going to bring to market is next generation and not some outdated technology that by the time we’ve been to commercialize it, it’s already updated, right? So, we’re well down the path on fecal incontinence. The implantable one were going to make the right decision.

Charles Haff - Craig-Hallum Capital Group

Okay. And my last question is on BOTOX. I don’t think it’s had much of an impact on your business. Any change in the market place in terms of BOTOX impacts in the last couple of quarters?

Rob Kill

Our view of the world is BOTOX and Interstim are not our competitors. Our competitor is when you walk through the isle of the Costco, Walmart, or CVS, and you see the adult diapers and pads. Our competitor is apathy, right. There is 10 million patients who feel drugs. And between all three of the third line treatments, we probably touched a 100,000.

So the market penetration is limited. And you probably know better than me but I have to guess that the adult diaper market is a multi-billion dollar market. So our competitors we is adult diapers. There is a place for all three of us, BOTOX, Interstim and us in the treatment algorithm. We’re focused on how we can pass the apathy that’s out there.

Charles Haff - Craig-Hallum Capital Group

Yeah. I agree with you. The adult diaper market is about $3 billion to $4 billion industry according to my checks. Thank you.

Rob Kill

You welcome, Charles.

Operator

At this time, I would like to turn the conference back to management for closing remarks.

Rob Kill

All right. Well, thank you. And thanks everyone for participating today. We do appreciate your interest and we look forward to updating you on our progress for our first quarter of our fiscal year 2015, later in this year in July. Have a great day.

Operator

Ladies and gentlemen, if you would like to listen to a replay of today’s conference call, please dial 1800-406-7325 or 1303-590-3030 and answer the access code 4682013 followed by the pound sign. This concludes our Uroplasty fourth quarter fiscal 2014 financial results conference call. Thank you for your participation. You may now disconnect.

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Source: Uroplasty's (UPI) CEO Rob Kill on Q4 2014 Results - Earnings Call Transcript
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